SBSP3

The Companhia de Saneamento Básico do Estado de São Paulo, SABESP, was created in 1973 as a mixed-capital company with the objective of consolidating the guidelines of the National Sanitation Plan (PLANASA) and structuring the provision of water and sewage services in the State of São Paulo. Over the course of its history, the company has gone through significant processes of going public and corporate reorganization. In 1994, it registered as a publicly traded company with the CVM and, since 1997, its common shares have been traded on B3 under the ticker SBSP3. In 2002, it joined B3’s Novo Mercado listing segment and, in the same year, began trading Level III ADRs on the New York Stock Exchange (NYSE), expanding its access to the international capital markets. The State of São Paulo’s stake in its capital was gradually reduced through secondary offerings, culminating in the privatization process completed in July 2024, when a new bylaws was established with the creation of a special class preferred share, the golden share, held by the State of São Paulo, preserving veto rights over matters deemed strategic.

SABESP’s business model is centered on the provision of basic sanitation services, with a focus on supplying drinking water and sanitary sewage. The company operates in all stages of the water supply chain, including abstraction from surface and underground sources, treatment, storage, and distribution, as well as the collection, transportation, treatment, and final disposal of sanitary sewage. Its corporate purpose also allows for operations in drainage and management of urban stormwater, urban cleaning, solid waste management, and related activities, although net revenue is entirely derived from the provision of sanitation services. In 2024, SABESP recorded net operating revenue of approximately R$ 36.1 billion, fully associated with concession and public sanitation service contracts. The company also structures adjacent businesses related to water reuse, treatment of non-domestic effluents, and small-scale power generation, generally through minority stakes in special purpose entities.

From an operational standpoint, SABESP directly serves 375 municipalities in the state of São Paulo on a retail basis, in addition to two municipalities in the wholesale segment (Mogi das Cruzes and São Caetano do Sul), which positions it as the largest sanitation company in Brazil in terms of service coverage. As of December 31, 2024, water supply services had around 10.4 million active and inactive connections, serving approximately 28.1 million people, representing about 61% of the population of the State of São Paulo. In sanitary sewage, there were 8.9 million active and inactive connections, serving around 25.1 million inhabitants. The customer base is diversified among residential, commercial, industrial, and public sector consumers, with no individual customers accounting for more than 10% of net revenue. In 2024, the combined billed volume of water and sewage reached about 4.3 billion m³, with residential consumption prevailing. The company also reported initiatives to increase operational efficiency, such as implementing zero-based budgeting, modernizing meters, actions to combat consumption fraud, and voluntary severance programs to adjust headcount.

SABESP’s geographic presence is concentrated in the State of São Paulo, with no operations abroad, but with broad activity in metropolitan regions, inland areas, and the coast. The company operates in a state with one of the highest per capita income levels in the country, which contributes to a relatively lower default profile across the municipalities served. The revenue structure is heavily concentrated in large urban centers: in 2024, the ten main municipalities accounted for 70.4% of gross revenue, with special emphasis on the city of São Paulo, which alone represented 51.8% of the total. In addition to its direct operations, the company holds joint ventures such as Águas de Castilho S.A., Águas de Andradina S.A., and Sesamm – Serviços de Saneamento de Mogi Mirim S.A., expanding the provision of water supply and sewage treatment services through specific corporate models. SABESP has also been expanding its presence through tenders and standalone concessions, such as the 30-year contract for services in the Estância Turística de Olímpia, assumed in 2023 through a special purpose entity.

SABESP’s operating assets include a significant set of water production systems, dams, water treatment plants (ETAs) and sewage treatment plants distributed across the State of São Paulo. As of December 31, 2024, the company operated 250 ETAs, compared to 235 in the previous year, with a strong concentration in the São Paulo Metropolitan Region (RMSP). The main supply systems serving the RMSP are Cantareira, Guarapiranga, Alto Tietê, Rio Grande, Rio Claro, Cotia, and São Lourenço, which together stored about 953.9 million m³ of water for treatment on that date, excluding the technical reserve of the Cantareira System. The average monthly water production for the RMSP was 67.2 m³/s in 2024, higher than the 64.8 m³/s in 2023, reflecting the relevance and complexity of the water system it operates. The water treatment process uses conventional technology with coagulation, flocculation, sedimentation, filtration, disinfection, and fluoridation stages, complemented by advanced technologies such as ultrafiltration and reverse osmosis at specific facilities, and is accompanied by systematic quality control in laboratories accredited by INMETRO.

In regulatory terms, SABESP operates in a heavily regulated environment at multiple levels. At the state level, the Regulatory Agency for Public Services of the State of São Paulo (ARSESP), created in 2007, regulates and supervises the sanitation services provided by the company, including tariff and quality aspects. In line with the New Legal Framework for Sanitation (Federal Law No. 14,026/2020) and State Law No. 17,383/2021, the municipalities served by the company were organized into the Regional Unit for Drinking Water Supply and Sanitary Sewage Services in the Southeast region (URAE-1). In 2024, SABESP entered into a unified concession contract with URAE-1, effective until October 19, 2060, with its effectiveness subject to the completion of the privatization process. This contract gradually replaces the previous logic of individual program contracts and incorporates universalization targets, investment requirements, and economic-financial parameters. At the federal level, the National Water and Basic Sanitation Agency (ANA) issues reference standards for the sector, which may be adopted by ARSESP, especially on topics such as tariff regulation, universalization targets, quality standards, and calculation of indemnities.

SABESP’s corporate and governance structure was significantly altered with its privatization in 2024. State Law No. 17,853/2023 authorized the sale of the State of São Paulo’s stake, including its controlling interest, through a stock exchange auction or public offering, and established the Universalization Support Fund in the State of São Paulo (FAUSP), aimed at financing the universalization of sanitation services. With the completion of the public offering in July 2024, the company ceased to have any shareholder owning more than 50% of its share capital, adopting bylaw mechanisms that limit the concentration of up to 30% of common shares with voting rights in a single shareholder or group of shareholders. The golden share granted to the State ensures veto power over changes related to the company name and headquarters, the corporate purpose of providing water and sewage services, and limits on the exercise of voting rights. In the capital markets, in addition to CVM and B3 regulations, the company is subject to SEC rules and the Foreign Corrupt Practices Act (FCPA) due to its ADRs listed on the NYSE.

Regarding environmental, social, and governance practices, SABESP aligns its strategy with a structured ESG agenda. In 2023, the company explicitly incorporated environmental, social, and governance principles into its corporate strategy and, in 2024, created the Sustainability and Corporate Responsibility Committee in its bylaws, composed of three to five members, including one representative elected by employees. This committee is responsible for integrating ESG factors into the business strategy and guiding the adoption of social, environmental, and governance standards in internal policies and procedures. The company prepares an annual Sustainability Report based on Global Reporting Initiative (GRI) standards, Sustainability Accounting Standards Board (SASB) standards, and the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD), in addition to linking its initiatives to the UN Sustainable Development Goals and the principles of the Global Compact. The provision of treated water and sanitary sewage services is, in itself, directly linked to environmental preservation and public health, with significant impacts on quality of life, the rational use of water resources, and mitigation of water pollution in urban and metropolitan areas.

In the competitive context, SABESP operates in a public-utility market characterized by long-term concessions and strong regulatory intervention, in which competition occurs mainly at the bidding stage for new contracts or renewals. The company is one of the largest sanitation operators in the world in terms of population served and investments, historically accounting for a significant share of sector investments in Brazil. Its operations are entirely concentrated in the state of São Paulo, with no revenue abroad, and its revenue is influenced by factors such as tariff adjustments defined by regulators, contract reviews, weather conditions affecting water availability, billed volume, the macroeconomic environment, and regulatory changes. The SBSP3 shares traded on B3 reflect this profile of a capital-intensive public utility company, with predominantly regulated revenues and exposure to public policy decisions and sector regulation.